Investment Strategy Returns: Volatility, Asymmetry, Fat Tails and the Nature of Alpha

By: Arthur M. Berd

The key question in investment management is to understand the sources of investment returns. Without such understanding, it is virtually impossible to succeed in managing money. Even risk management, usually a more scientific endeavour compared with the murky craft of predicting directional or relative movements of asset prices, becomes difficult if we have no proper framework within which to think about the future return distributions.

In this chapter, we explore the importance of non-Gaussi